In ARC Capital Partners Limited v BRIT Syndicates Limited and QBE Underwriting Limited, some familiar professional indemnity clauses were examined by Mr Justice Cooke.
ARC, an investment manager, claimed indemnity from its professional indemnity insurers, in respect of ARC’s alleged liability to an investor for negligent investment of its funds into a property business, “OH”.
Insurers relied on two policy defences to decline the claim:
- The investor’s claim against ARC involved acts and omissions committed before the Retroactive Date specified in the relevant policy, and was therefore excluded from cover.
- A letter to ARC from the investor’s lawyers, which had asserted that the investor had a “strong” claim against ARC, was said to constitute a “claim” for the purpose of the relevant policy. This claim had not been notified to insurers “as soon as practicable”, in breach of a policy condition precedent.
ARC’s insurance programme, which responded on a “claims made” basis, contained a Retroactive Date clause which excluded any claim “arising from or in any way involving any act, error or omission committed or alleged to have been committed prior to 5th June 2009”. All ARC’s “wrongful acts” (i.e. actionable ones) had occurred in 2010, but insurers relied on the fact that those acts had taken place against background transactions dating back to 2008. The judge held that the Retroactive Date clause was worded broadly enough to capture ARC’s acts and omissions which had either a direct or an indirect causal link to ARC’s liability. What was required for the exclusion to bite was an act or omission which could give rise to liability, which occurred prior to the retroactive date, and which was genuinely part of a chain of causation which led to liability for the claim. Insurers’ defence failed because none of the 2008 factors had any causative connection with ARC’s liability for the substantive claim made against it.
As for the investor’s lawyer’s letter to ARC, this did not constitute a “a written demand for monetary damages or non-pecuniary relief” within the policy definition of “claim”, since, although the letter asserted that the investor had a “strong” claim against ARC, its principal purpose was to agree a protocol with ARC for recovering the investment from OH, and it merely reserved the investor’s rights against ARC. The letter did assert that ARC should itself fund the costs of the attempted recovery from OH, rather than use monies held on behalf of the investor under the relevant investment management agreement, but the judge regarded this assertion as a “suggestion”, rather than a “claim”, for policy notification purposes.
As such, ARC’s failure to notify insurers of the letter did not amount to a breach of condition precedent. It should be mentioned that there was no equivalent condition precedent regarding notification of circumstances likely to give rise to a claim.
The judge went on to rule that, had the letter amounted to a “claim”, and had there had been a corresponding breach of condition precedent in the relevant policy, nevertheless the claim would have been valid under the succeeding year’s policy. This was due to the presence there of a Continuity of Cover clause, which extended cover (on expiring terms) in respect of any claim which could or should have been notified under a preceding policy, provided that insurers had remained ARC’s insurers “without interruption” throughout (which they had). This was so notwithstanding the presence in the succeeding policy of a claims notification condition precedent, since the judge held this did not nullify the Continuity of Cover clause, as the whole point of the Continuity clause was to extend cover to a claim in circumstances where there had been a breach of condition precedent in an earlier policy.